Richard Drury
Listen here or on the go via Apple Podcasts and Spotify.
Renowned investor Barry Ritholtz shares his thoughts on the current market (1:10). Trajectory of the US dollar (11:50). Fiscal stimulus era, Powell vs Trump, problematic tariffs (17:30). Don't pay attention to earnings (24:40). What economic data investors should focus on (29:15). Most important metrics are external, not internal (33:15). Tesla, Nvidia, and whether valuation matters (37:05). On Bitcoin and gold (46:00).
Transcript
Rena Sherbill: Barry Ritholtz, we have on the podcast today, welcome to Seeking Alpha. I'm so excited to talk to you.
Barry Ritholtz: Well, thank you so much for having me.
RS: I think any market observer, any market participant, any investor knows the name Barry Ritholtz, perhaps knows what you do. You have a litany of laurels to well, you don't rest on them, but you have a litany of laurels to your name.
Co-founder, chairman, CIO of Ritholtz Wealth Management. You're a trailblazing podcaster, Masters in Business, most popular podcast on Bloomberg Radio.
You are the Blogfather. You predate even my sixteen years at Seeking Alpha, which we used to excerpt your writings on Seeking Alpha from The Big Picture. A very accomplished and astute man. So I really appreciate you taking the time. My favorite characteristics are smarts, thoughtfulness, humor, and kindness, and it seems that you have all four of those in spades. So I'm really excited to get this conversation kicked off.
I think the place I wanna start is, we're in seemingly unprecedented times, certainly one that's filled with volatility and unpredictability. We have some economic shocks. We have some economic deals that we're not totally clear on where they're going.
A lot of market volatility. How would you best encapsulate, you just wrote a book, How Not to Invest. And it's about not handicapping ourselves with these unforced errors, these limitations of our humanity, our fallibility not coming too much into play, which seems like this is a marketplace where a lot of fallibility is coming into play. But how would you best encapsulate this moment in time that we're in, especially for investing?
BR: Sure. So first, as you have seen in the book, I quote a lot of people. I use a lot of academic and market history and research. Anytime someone says unprecedented, I immediately go to the Ray Dalio quote.
Unprecedented usually means you haven't witnessed it in your lifetime, but that doesn't mean it hasn't happened before.
Everything new under the sun is old. I don't wanna get biblical on people, but hey. It was ninety-five years ago. We had the Smoot Hawley tariffs. Same basic concept. Hey, these other countries are taking advantage of America. We're gonna introduce these tariffs, and we'll collect all the fees, and it'll be great.
And the depression had already started, but it made the depression much worse. Fast-forward ninety-five years. The fascinating thing about this president is it's not like he didn't tell us.
He's called himself tariff man. He's talked about tariffs, I don't know, his whole adult life. So we all collectively are guilty of a failure of imagination, myself included.
But this moment in time wouldn't be the first unforced error made by a president. They do it all the time. Policies always have unintended consequences. Sometimes they're minor, and we get over it.
For example, Bill Clinton said, why are we paying CEOs more than a million dollars a year? Let's stop that. And so let's see if we can roll back income inequality. And so we passed the rule.
And so what did companies do? Okay. We'll pay them in options, thereby kicking off one of the greatest accelerators of the wealth gap. Because now these CEOs are making hundreds of millions of dollars in stock options. Yeah. Pay me a million dollars a year. I don't care. And we've made them shorter time focused. So hold all that aside.
I got a little grief for writing a piece in early March, tune out the noise. This was before tariff day, before Liberation Day. And look, whatever happens, we'll get through this. Is whatever's going on, is it as bad as the great financial crisis, as the pandemic, as the combination of the dot-com implosion and September 11? No. We'll live through this. Liberation Day happens, and the market just says, hey, we were not anticipating this giant decrease in revenue and profits.
So now we have to adjust, we have to refigure that into the discounting model that is stock markets. And so our discounted model says, hey, our revenue expectation is probably 10 to 20% too high. Our profit expectation is probably 20 to 30% too high.
We need to lower our numbers, our expectations, 20%, maybe even 25, 30 percent. Down 15% got the president's attention, and that's when he kinda walked back the tariffs.
This sort of stuff happens on a regular basis. Politicians do their thing. They argue. They fight. They pass legislation, but the bond market is undefeated, and the stock market is right behind the bond market.
RS: As you said, Trump already told us who he is. And I would say this art of the deal that he seems to be negotiating with various countries and governments seems to be part of his plan.
We had a Wall Street Breakfast headline a couple weeks ago, Is Trump playing chicken with the world? Would you more or less categorize it as such?
BR: I try and go right down the middle and make sure whatever I say is nonpartisan, data driven, and objective, which is very hard to do with a lot of politicians, President Trump in particular.
So let me phrase it this way. He raises some really valid points. China is a bad actor on the global stage. They take advantage of American businesses and investors.
They treat foreign investors unfairly. They treat American companies poorly in China to say nothing of stealing our intellectual property, hacking our computers, not giving our companies a fair shake in China. All true.
However, and this is a big pretty big; however, it seems like there is an asymmetrical risk to put a single bullet in a chamber and spin the revolver and play Russian roulette with yourself on a one in six chance with a $28 trillion US economy and a hundred plus trillion dollar global economy.
That seems a little reckless to get China to negotiate by we're willing to cause a global recession, maybe even a depression in some countries, and put this unprecedented expansion I shouldn't say unprecedented.
Put this fantastic post financial crisis expansion at risk. And let me just put a little meat on the bone since I mentioned data.
So when we look at rolling fifteen-year periods, not the sort of thing you typically look at, but I always love to look at these things from a different angle. The past fifteen years have been spectacularly underappreciated.
And what I mean by that is go back and look at the history of all the rolling fifteen-year periods following World War II, ending around 1957, plus 18% a year for fifteen years.
Just an amazing period of the rise of Pax Americana, American leadership, diplomacy, economic leadership, political leadership, peak America, which is what created the middle class.
And I can give you a thousand other things that era created. 18% a year. Fast-forward to the eighties and nineties, the technological revolution led by America.
That period ending sometime in 1999, that fifteen-year period, 17% a year. Right? Just amazing numbers. Markets averaged 10% over the century. 17 spectacular for fifteen years.
The period ending in 2024, the fifteen-year period, plus 16% a year. The third-best fifteen-year period in history, 16% a year. And I wanna give you the exact data point because it's so interesting.
Over the entirety of the post financial crisis era, we have been averaging a third more than the typical annual returns since 1925 and nearly double any average fifteen year stretch.
So we've had it really good for a long time, and it just seems reckless to do anything that puts that at risk.
RS: So speaking of, let's say, American exceptionalism, what would you say about the trajectory in the near term for the US dollar, something that has been reflected in this volatility and uncertainty that we've seen?
BR: So short answer and long answer. The short answer is, how the hell do I know? I don't know where the dollar's gonna go.
And I'll let you in on a little secret, neither does anybody else. But I'm not smart enough to lie about it, so I say this and get into trouble. The longer answer is there is a range of possible outcomes.
I wrote up a research piece, the best case, worst-case scenarios from the tariffs. My friend Ben Hunt over at Epsilon Theory, a little more dour than me, but I love finding people who I totally disagree with but also intellectually respect.
Not easy to do because if they disagree with you, they're obviously an idiot. But when you find someone that you're on the opposite side of the trade, and you like them and their thought process, hey, am I not being negative enough?
And Ben wrote the car crash of Pax Americana and essentially helped me flesh out my worst-case scenario, which is our exorbitant privilege of the dollar being the reserve currency of the world goes away.
Nobody buy wants to buy our debt or our bonds. Suddenly, our deficit becomes unsustainable. Interest rates go up. Recession turns into depression. Cats and dogs living together.
It's just ridiculous. That's one tale. That's a possible tale. Maybe 10% chance that happens. 20%? So many moving parts, so dependent on what the White House does, what our trading partners do.
But, sure, I can visualize the worst-case scenario. The best-case scenario is, hey. We were told by hit President Trump supporters, take him seriously, not literally.
This is a negotiating tactic. This morning, we heard a great announcement with UK. Now that's kinda cheating. It's like kissing your sister. Like, they're our longest standing ally. We have a special relationship. If anyone's gonna cut a deal with us, it's the UK. Look for Canada and Mexico next.
Maybe you start to get some of these deals. We roll back the hot rhetoric. The market has already surpassed the post-Liberation Day lows. We're back to where we were before April 2.
So either this market gives up the ghost, and we start another leg down, or the market is saying, hey, we like what we're hearing. We like these deals. We wanna see more of them, and we can begin to creep our future expectations of what we should expect from corporate America's revenues and profits back to pre-April 2 levels.
Let's see what happens. And so, you know, I know it's very unsatisfying not to have a straight yes or no answer, but let's be honest. The world is complex. Shades of gray make a big difference. And anytime you hear someone saying, you know, this single issue is the outcome, those people tend to be disappointed because that's not how the world works.
It's complicated. It's nuanced. There are a lot of moving parts. And if you could tell me what the White House policy is gonna be about a, b, c, d, x, y, z, I could tell you where the dollar is gonna go and what our allies are gonna say and what our frenemies are gonna do. There are so many moving parts.
This is the first year that someone almost had a perfect bracket, and Buffett paid a million dollars out for March Madness. Nobody has had a perfect bracket. That's 64 teams. Think about 80 countries. Every little thing that could go wrong, extrapolate that. The perfect bracket is easy compared to predicting what's gonna happen with all of these players.
RS: In your book, you have this section of your favorite quotes, like life mottos, and you have this Bertrand Russell quote that used to be my email signature for many years. The whole problem with the world is that fools and fanatics think that they're right, but wiser people are so full of doubt. And to your point, I think that's very accurate.
BR: Yeah. No doubt. No doubt about it. Listen. My favorite part of the book is the nobody knows anything section, channeling William Goldman, but you kinda learn over time. If you don't know what, you know, don't know or do know or what your blind spots are, hey.
There's no way your forecasts are gonna be remotely you wanna at least hit the dartboard. If you don't know what your blind spots are, if you don't know what you don't know, you're lucky if you hit the wall.
Forget the dartboard or the bull's eye. So to mix metaphors, we really need to have a greater degree of humility as market participants about what we really know and what we don't know.
And Bertrand Russell was right. Wise people should have doubts. You go back to Aristotle. The one thing I know is that I know nothing. So that's, what, five thousand years ago? So unprecedented and yet exactly the same.
RS: So this market madness, how would you, if you were compiling a bracket, how would you say that the interest rate conversation and speaking of hot rhetoric, this hot rhetoric between Powell and President Trump and the jawboning there, how would you say it plays into the US dollar conversation and broadly speaking, policy and economically speaking?
BR: So inflation peaked June 2022. It plummeted from 9% to 2.5%. I made the argument at the time that, hey, 2000 to right up into the pandemic was an era of driven by monetary policy.
The CARES Act, the first one under President Trump, was the biggest fiscal stimulus since World War II as a percentage of GDP, 10% of GDP. CARES Act 2 under President Trump added to that. CARES Act 3 under President Biden added to that.
And then Biden passed four or five ten year programs, the infrastructure bill, the semiconductor bill, the Inflation Reduction Act. There was a fourth one involving veterans, but they're all ten year spends.
So we are in the era of fiscal stimulus for another five, six years to say nothing of what we're gonna end up seeing from the renewal of the 2017 tax cuts and job acts in whatever form it is. So we are in an era of fiscal stimulus, which raises two points to answer your question.
The first is the 2% inflation target. It's random. It's a made up number. It literally comes from the 1980s in New Zealand. It has nothing to do with anything. That's according to a former vice chair of the Federal Reserve, Roger Ferguson, who describes why this is pointless.
I don't believe they would be admitting defeat if they said we're gonna have a 3% target, and here we are. But I would tell you, if I was advising Jerome Powell, I would tell him to quote Wadsworth and say to President Trump, I can't hear what you're saying because what you're doing is speaking so loudly.
So if you're gonna make prices go up through tariffs, how on earth can we cut rates unless you send prices up so much that you're gonna send the unemployment rate up? And then we'll be happy to cut rates.
But, really, do we have to cause a recession with tariffs in order for us to cut rates? Everything was going along swimmingly. The rates had come down from 9% to 2%. That was by 2023. Inflation was a global phenomenon. It wasn't just a US phenomenon.
And the US has performed better under Jerome Powell's leadership at the central bank than most other countries. PS, If I was advising President Trump, I would say, hey, you appointed him. He did a good job. Take the win and work behind doors to tell him what you're doing and get rates lower.
But all of this feels like, first of all, the Fed has to be independent just like the Supreme Court has to be independent. And this back and forth is completely, completely unproductive, number one. And then number two, and I say this with a heavy sigh because everybody interprets this as partisan, but it's not.
Let me give you two minutes of not just the tariffs, but how they were implemented that's so problematic. So we just had a Fed meeting recently. Before the Fed changes interest rates, whether it's a hike or a cut.
Hey, everybody. We're raising rates in six months. Hey, everybody. In three months, we're raising rates. Hey, everybody. Look at the dot plot. In two months, we're raising rates.
A month before the meeting, all the Fed governors and presidents fan out. They speak at the Petroleum Club of Houston and the Economic Club of New York, and they speak at Harvard, and they speak at Berkeley, and everybody knows.
And then the meeting happens, and they raise rates or cut rates or whatever they do. And then Jerome Powell holds a press conference and politely answers questions. And then a few weeks later the transcript comes out. Nobody's surprised at the change in interest rates because the Fed knows the market does not love being surprised.
But when you basically are talking about 5 and 10% tariffs, and April 2 comes, and you go, hey, 100% tariffs. Everybody party. The market says, hold my beer. We're 20% too high, maybe 30% too high. This is gonna be problematic.
Allow us to adjust our prices to reflect this new information and the ham fisted way it was just dropped on everybody. So you can make an argument that there are two problems here.
Problem one is tariffs are inflationary. People have a finite amount of money to spend. And if you're gonna make the cost of goods and services go up, they will be able to buy less of them. Again, Economics 101, not partisan. This is just fact.
If you disagree with me, commenters and emailers, feel free to realize, I don't say this very often, but you're completely wrong. Save your emails.
On the other hand, there's no disagreement. You can't surprise the markets. If you surprise the markets, well, then you get three of the worst consecutive days in a row on the way to a 15% drawdown in a market that has been the third best performing market over any fifteen-year period in history.
You can't blame that on anybody anything else. It's not even the tariffs. It was just kaboom. Hey. Guess what? Markets don't like that.
RS: What's your best guess for what happens at the June meeting and beyond?
BR: So it really depends on how much progress we see made on these various tariffs and how the President respects the investor class and the bond market.
I mean, James Carville was right. I wanna be reincarnated and come back as the bond market. It's the most powerful thing in the world. If we take him seriously and not literally, and if these tariffs are negotiating tactics, if and if we start seeing some more wins, and we're seeing lots of signs of that.
If we get more deals, look for Canada, look for Mexico, look for Japan, some of the stuff is just so distracting and silly. No. He's not gonna be Pope or serve a third term. Canada's not gonna be the fifty-first state, and we're not invading Greenland or Panama.
But upset the stock market because you completely upend their economic expectations of an ongoing healthy economy, healthy market, ongoing expansion, and, hey, there's gonna be hell to pay. What's the quote?
Hell hath no fury like a market annoyed. Hold Shakespeare aside, you cannot shock the stock market that way and then be surprised when the market says, oh, you're in charge? Let me show you who's really in charge.
We're gonna be here long after you're dead and buried. To all of us, not just to anyone, you know, a 78-year-old president, to all of us, the stock market remains undefeated.
RS: To the stock market, are you paying attention, are you paying a lot of attention, a little attention to recent earnings and upcoming earnings, where likely the companies are gonna be guiding around these tariffs and spilling more about what that means for them?
BR: No. You can't. You really can't pay attention to that because we have no idea what's gonna happen. So first, we've kinda given everybody a free pass. So, there are a handful of companies that have specific issues.
Tesla (TSLA) is one of them. There's been some brand damage there. Hold them aside. Boeing (BA) has been dealing with its own internal strife. That was before the tariffs. Maybe this works out well. Maybe we cut a deal with China, and they buy a whole bunch of 757s.
I don't know where this ends up going. Everybody seems to have gotten like a get out of jail free card because of all the volatility and disruption. And let me remind people, it's not just the best rolling fifteen years. The entire post-World War II era has been absolutely fantastic for America in general.
Now there's a whole another conversation to have about winding wealth inequality and income gaps and the lack of safety net and how 25 million uninsured people, and, you know, it's kinda horrifying that half of all personal bankruptcies are driven by medical debt. That doesn't make any sense.
So there are real issues here, just like there are real issues with China. But when you look at Pax Americana, when you look at how much that post-World War II era has given us. The mantle of political leadership, technological, leadership, economic leadership, when you just go through all the things that having the dollar as the reserve currency, not having to worry about our debt, giving people paper, and they give us stuff, that's been a great deal.
Again, there are issues. There are problems. We have done a poor job - just as when we move from an agrarian society to an industrial society, just as we move from a manufacturing society to an information services society, each of those transitions have been painful, and I gotta say, there are a lot of people left behind. The US has not done a spectacular job managing that.
Like, if you're a coal miner in West Virginia, well, then the government should be setting something up when they pass legislation for tax credits for EVs or solar panels or whatever, hey, you got a whole state here that lives on coal. You gotta do something for these people. Figure it out.
Admittedly, a lot of this is hindsight bias. But, again, I don't wanna just quote Ray Dalio, but Ray Dalio has built an amazing business because he blew up his business when he got, I think it was the post '87 crash wrong. He was looking for a depression caused by emerging market debt.
Global central banks and the UN renegotiated it, and he was completely wrong and crashed and burned. And his whole approach has been, we all need to learn how to fail better, including me as an investor.
And so if we're gonna keep making the same mistakes as a country, we can't be surprised that you have a big swath of people not happy with the status quo.
And I don't mean people who are unhappy about civil rights issues. I'm speaking economics. I'm trying to stay within what I know. I don't know much about all the other political issues that come up. I'm just talking, we cannot allow so many people to fall behind economically, especially when the other 95% of the country is profiting so mightily from these changes.
So I think we need to do a better job. That's my political speech. Hey, if we're gonna all go shopping at Walmart and buy cheap Chinese stuff because we like that, well, the people you're putting out of business, the clothing mills in Virginia or the underwear factories in Georgia, you have to find a way to help those folks.
Maybe we need an industrial policy. It seems to have worked out pretty well for China. It worked out well in the eighteenth and nineteenth century for the United States and the post-World War II, the first few decades post, in the twentieth century. Why have we abandoned the things that have made us so successful?
RS: What would you say in terms of improving the data that we compile and pay attention to in improving our assessment of the markets and stocks and the economy?
What would you say are the most salient economic data releases that you're paying attention to, and also the most salient stock metrics that you use?
BR: So let's start with George Box, who I cite in the book. All models are wrong, but some are useful. And what matters, we all suffer from the recency effect. The most recent data point is the most important. Flip on any, you know, financial news channel.
You'll see the countdown to the nonfarm payable releases in milliseconds, like it's a Le Mans race. Like, hey, it's an economic release, and most of them don't matter. Whenever I say that, I get pushback.
So let me explain why nonfarm payrolls - what matters is when there's a change in trends. You'll use a three-month moving average, six-month average. You're constantly expanding jobs two fifty, three hundred, four hundred thousand. When that starts to reverse, and it's 200, 150, one hundred, pay attention.
But here's the problem. We're 347,000,000 people in the country with, what's our labor force? It used to be 168. I think we're closer to 178 right now. 178 million people. In any given month, three and a half to 4 million people retire, resign, leave a job, drop-dead, whatever, they're no longer working there. And in that same month, 3-4 million people start a new job, graduate, come back from sabbatical, come back from maternity or paternity leave, and they start working.
And what the nonfarm payroll is the net difference, last month it was about 168,000 jobs. And then that'll get adjusted the following month, and then you'll be a following update. But 168,000 jobs out of 4,000,000 people leaving, 4,000,000 people plus or minus starting, out of 178,000,000 people out of 347,000,000 Americans.
It's a rounding error. It's a fraction. It's not significant. What matters is, overall, is the economy continuing to create jobs at more or less the same rate it has been? Is it getting better? Is it getting a little worse? Little better, little worse is noise.
Is there a sudden break in the prior trends? Are wages going up? Are hours of work going up? You look at all those things, and 97% of the time, it's fine from month to month. When, suddenly during the pandemic, you get like a negative 2,000,000 prints, you knew that was coming. Something is happening.
During the financial crisis, I knew the labor market was going to hell before the BLS did because I would send out my morning emails, and suddenly, I'm getting out of a 10,000 person list, I'm getting bounces of twenty, forty, 50 a day. And when that became a hundred a day, it's like, it's getting really bad.
What I love about Ed Hyman and ISI is they do all these surveys of their companies that they work with, and they know before the BLS knows that the labor market is contracting. And the labor market is contracting because demand for goods and services is falling.
And if you're looking in the right place, and ISI is one of my favorites, you're gonna see that long before the data comes out from the government.
Let me remind everybody that before Roosevelt and the New Deal, nobody was putting out this data. Everybody was trying to make policy guessing, and they did us a giant favor by creating the Department of Commerce, the Department of Labor, the Department of Energy, all these different departments that give us information about what's happening in the economy.
RS: And stock wise, what would you put at the most important metrics?
BR: It's external, not internal. The most important metrics are why are you investing in the stock market? What is your time horizon? So if you're investing for retirement and you're 50, hey. You got fifteen years.
Who cares what happens in April 2025? Let me phrase this in a way that people would understand. If it's 1987, and you're not retiring to February, what does it matter that the market crashed 22% in October of that year?
By the end of the next year, you were above where you were. History tells us that broad markets always recover. Some companies never do.
But if you're own gonna own a broad index or even better, the total market, and you don't need the money for fifteen years, you're really hard-pressed to find a fifteen-year period where markets are anything other than positives.
There are some years when they're barely negative, but that's the exception. Twenty years in the US, there's no market that's no equity market that's negative over 20 any twenty-year period.
Typically, bear markets last eight years, ten years, twelve years, And bear markets essentially work off the excesses of the end of the prior bull market.
Or, let me say that differently. The end of bull markets pull forward a couple of years of gains and then puke that back out during the bear market.
So if you were a buyer when Alan Greenspan, former Federal Chairman, gave his irrational exuberant speech in 1996, oh, the Fed says the market's irrationally exuberant. I'm a seller. You missed 20 plus percent in ninety-six, ninety-seven, ninety-eight, ninety-nine. Unprecedented four-year run to say nothing about the first few, Nasdaq doubling from October to March 2000.
So the trend is always your friend. And if you have a long-term horizon, you have to look through the other side of whatever the noise is. My colleague, Michael Batnick, has this amazing chart. There's two of them in the book. One goes back to the financial crisis. One goes back to like 1925.
And he shows you ever since the financial crisis, there's always a reason to sell. Every year, there are multiple disasters. And you go back to 1925, the Great Depression and World War II and the Kennedy assassination, oil embargo.
Every year, there's some disastrous thing that happens, and the markets are like, what does this mean to revenues and profits?
Oh, assassinating John F. Kennedy doesn't mean anything to revenue and profits. Oh, the '87 crash was a technical thing that was caused by marketing portfolio insurance, doesn't affect revenue and profits. Even the Thai bot crisis and the Russian ruble implosion, well, it affects the firms that lever it up and hold that stuff.
But what does that have to do with corporate revenues and profits? So of all the data points to pay attention to, and I don't wanna just be this mercenary capitalist that says profits, profits, profits.
But if you wanna look at one thing, look at forward expectations for revenue and profits, and that will tell you the future health of the economy.
It's never perfect. They never get it exactly right, and very often, the analysts are either too optimistic or when things are bad, way too pessimistic. But that's the key driver.
The multiples we pay are simply our sentiment, how exuberant we are. I define a bull market as an increasing willingness to pay more and more for that same dollar of earnings. And the bear market is the opposite. Multiples shrink because we become less willing to pay for that same dollar of earnings.
RS: I'm also curious how you would encourage investors to think you talk about valuation a bit in the book, and you mentioned Tesla earlier.
Stocks like Tesla, stocks like Palantir (PLTR), valuing those stocks is becoming a bit more difficult in terms of what they're focused on, the narrative, the outside noise, the overlapping and sometimes not overlapping sector interest and affiliation that these companies have, some of them disparate. How would you encourage investors to think about valuation?
BR: There are two key things I like to tell people. First, over the course, bull markets tend to start cheap and endear because of that psychology, the enthusiasm of gotta get on board. I find it really, really difficult to forecast any individual stock based on valuation metrics.
And let me give you a perfect example. NVIDIA (NVDA), I think, is the first company to lose a trillion dollars, the first US company to lose a trillion dollars in market cap. Now what changed with their prospects? Nothing.
What how was NVIDIA at 2,000,000,000,000 on the way to three any different from NVIDIA 2.5 or 3 or 3.2? Everybody just assumed this was gonna grow to the sky. There'll be no competition.
Tesla is a good example. Five years ago, Tesla was ten years ahead of everybody else. They had the group the national network. They had the longest range. Their software was unique. Over the air updates, self-driving, nobody was close.
I don't know. 50,000,000,000 of investment later, and there are dozens of startup EVs. General Motors (GM) and Ford (F) have gotten into this. Volkswagen, Audi, Porsche have gotten into this. Hyundai and Kia have gotten into this. Mercedes and BMW. Now there's a ton of competitors.
Arguably, Lucid's technology, I interviewed the CEO last year, is way ahead of Tesla's in terms of range, efficiency, productivity per kilowatt-hour. And I'm not an EV expert. I'm just a car guy who finds this stuff fascinating.
Of all companies, GM's Cadillac is the highest rated self-driving. It's the most intuitive. It's the most effective. It's the least likely to engage in problems. The $7,000 upsell for self-driving that essentially is a glorified version of lane assist, people are kinda peeved at that.
And that's before we get to the issue of, you know, if I tweet something that's even remotely political, I hear from clients, I hear from employees, I hear from partners. It's not my job. Nobody hires us for Barry to criticize this senator or that congressman or the president. Nobody cares what I say about that.
But I look at what the CEO of Tesla did, and it's like, hey, you know, I don't know if you're aware of this, but the buyers of your car, they tend to be green. They tend to be what the president would call tree huggers. They're left of center. What are you doing? How are you alienating? That's not my opinion.
This is the first year that Tesla isn't 50 plus percent of California sales. Sales in New York have dropped. Registration of EVs have dropped dramatically in New York, they're down 50%. New registrations in Europe, and the Scandinavian countries are kinda done with them.
I think I read Tesla sales fell in I don't remember it was Denmark, Norway, Sweden, or all of them, 75, 80 percent. You cannot have the CEO of your company wildly alienating your core customer base.
And let me give you a compare and contrast because I wrote it in real time. This is in hindsight bias. A bunch of people were slagging NIKE (NKE) when they chose Colin Kaepernick, the quarterback who took a knee to protest police brutality, as their spokesperson.
And I just saw a parade of me, of old white dudes, showing up and complaining about Nike. What you have to stop and realize is Nike's customer base isn't me conservative old white guys. They're young. They're people of color. They're international. They like Colin Kaepernick. Nike stock went straight up after that.
So I'm not a marketing expert. I'm not a political expert, but I'm very much aware that you cannot, as a corporate executive, deeply alienate or offend your clients and your potential future clients. Nike played the political game and realized exactly who their clients were. Tesla, not so much.
So how do you figure out valuation? I don't know. Tell me what the CEOs of these companies are gonna do. Tell me what their competitors are gonna do. Tell me what the demands of the marketplace are gonna do.
That's a sophisticated way to say, I have no idea what the hell valuations are gonna mean for any of these companies.
RS: And that you have to be nimble in your approach. You can't be stagnant and just rely on the basics.
BR: Depends on what your approach to investing is. If you think you're the next Peter Lynch or the next Warren Buffett or the next Bill Ackman, well, knock yourself out.
Set up a little cowboy account. I talk about that in the book. Set up a cowboy account with, I don't know, three, four, five percent of your liquid net worth, and have a good time. Trade to your heart's delight.
Pick stocks, trade options, buy futures, whatever you wanna do. Have a grand old time. If it goes to zero, you get to say, thank goodness 97% of my cash is invested intelligently, and I'm not messing with it.
And if it goes up five x or 10 x, you get to say to yourself, now if I had a million dollars go up 10 x, I would never have been able to ride that up. I can't tell you how often, you know, I started on the sell side.
I worked with brokers and retail investors, and I can't tell you how often you know, I give an example in the book of Apple (AAPL) going from 15 on the introduction of the newfangled iPod to 20, and everybody sold it at 20.
It's like, what are you guys doing? It's like, listen. The market sucks. We're up 33%. Take the win. Alright. 33% is a good win, but it's not, you know, 12000%, which is what it did over the next, you know, twenty years. So it's having a cowboy account to indulge your inner hedge fund manager is great, but just be aware of the fact that it's really, really difficult to execute.
Everybody is chasing alpha when the vast majority of mom-and-pop investors don't even get beta. So my advice to those folks is, at least for the core of your portfolio, lock in beta.
And then if you wanna go chase outperformance, pick stocks market time, chase alpha, well, you can, but at least we're locking in market gains instead of the academic data on this is overwhelming.
You know, every year, about 55, 60 percent of active mutual fund managers underperform their benchmark. You take that to five years, and it's something like 80%. Ten years, it's like 90%. You go to twenty years. Net of fees, it's virtually zero.
There are a handful of household names that can consistently buy and sell stocks and beat the market. The data is fascinating. It turns out mutual fund managers are really good stock buyers. They're terrible stock sellers.
One of the academic research reports I discuss in the book is if you randomly sold a stock from their portfolio anytime a manager sold, that would generate a hundred to 200 basis points better performance than whatever the manager did.
Random is better than their sell selection. I could give you names like Will Danoff and David Einhorn, and we know their names because they're all unicorns.
I make the reference to the Michael Jordan commercial, the Gatorade commercial, be like Mike. Hey. I got bad news for you. None of you are gonna be six time NBA champions, multiple MVPs, multiple championship MVPs. You can drink the same sports drink that Mike drinks, but you're not gonna be like Mike.
Similarly, you're not gonna be like Warren Buffett. You're not gonna be like Peter Lynch. The odds are literally one in a hundred million that you will be one of the hundred best performing stock pickers in all of the history.
Living or dead, you're not LeBron James. You're not Warren Buffett.
RS: So as we wind down the conversation, we started the conversation around the US dollar a bit, and I know that this could be its own podcast episode. But if you would indulge me and our listeners, what are your thoughts on Bitcoin (BTC-USD) and gold?
We've seen some movement and volatility there. What are your thoughts on the ETFs in that space and how to approach those two?
BR: So I look at Bitcoin as if it's a technology company, which seems kinda funny. But if you look at the market cap of Bitcoin, it's bigger than Facebook, but smaller than Google (GOOG). So I think of this as a technological solution to the ability to move money around without having banks or the government involved.
Now we've learned a bunch of stuff. We've learned something like 30% of all coins minted have been lost or stolen. People lose passwords. People lose access. So when you see the returns, they're a little misleading.
We've also learned that it's not nearly as clandestine as a lot of people think because if you read either Zeke Fox's book, Number Go Up, or some of the recent reporting on Bloomberg had this great story about how the FBI tracked down these people who stole $8,000,000,000 worth of crypto. It turns out you leave fingerprints everywhere. You're not aware of it.
So if you wanna own a couple of percent of Bitcoin, like, you wanna own a couple of percent of, fill in the blank, Palantir, Nvidia, Amazon (AMZN), Microsoft (MSFT), whatever, I'm perfectly okay with that.
And, you know, you look at the BlackRock ETF, (IBIT) one of the fastest to one, five, 10, I don't even know what they're up to, billions of dollars now.
Like, I trust Fidelity (FBTC). I trust BlackRock. I don't trust myself with a crypto wallet. So, sure, pay a couple of bips for that. You don't want to fall into the one in four, one in three people who have like that guy lost the password. He's got, like, $320,000,000. He's debating buying a dump to go through all of it. Like, who needs that crap? Buy the ETF, pay 30 bips of a year or whatever it is.
And if you wanna have two or three or 4% of Bitcoin, knock yourself out.
RS: And gold?
BR: So gold (XAUUSD:CUR) is a little different because gold is a trade. Right? There was a Wall Street Journal article the other day that cracked me up.
And it's John Paulson who very famously participated in betting against the mortgage market. Paolo Pellegrini was his lieutenant who came up with that trade. They made billions of dollars. The fund did great. Kudos to him for killing it. The Wall Street Journal article talks about the trade that he put on right after the financial crisis in gold in 2010. It's finally paying off. And I just laughed out loud when I read that article.
First of all, I spend a lot of time trying to convince people that two, three, four years isn't long-term investing. That's a trade. Fifteen years, come on. Fifteen years is an investment.
PS, if he would have just put that into the S&P, he would have done five x as well as gold has done since 2010. Gold reflects uncertainty, lack of faith in the government, and lack of faith in the central bank.
It's sometimes an inflation hedge, not always. There's a whole thing in the book about the dollar, and I'll use your question to leap into this.
The dollar is not a store of value. The dollar is a medium of exchange. Like, I cringe every time I see one of these memes go by. The kid Kevin from Home Alone in 1990, the basket of goods he bought cost $19.
Today, that costs $70. Well, let me ask you a question. When you go shopping in the supermarket in 2025, do you have a pile of money you earned in 1990 that you've been leaving around since then, or do you use what you got paid in 2025?
Because that is really a very deceptive act of deceit to make that claim because it turns out that as much as inflation has gone up since 1990, your wages have gone up about the same.
So if you're buying the basket of that bag of groceries in 1990 with $19. 90 dollars or if you're buying the same basket in 2025 with $25, it's about the same.
However, if you would have put that $19 into the S and P since then, you would end up with, like, $300, and you could buy that bag of groceries for $70 and still have 200 plus dollars left over.
So it's very deceptive when people pretend the dollar is a store of value.
The dollar needs to hold its value long enough for me to pay my mortgage or rent, to pay my bills, maybe pay for a little entertainment, invest in my company, invest in the stock market, and I'm good. So from the time I get paid till the time it leaves my bank account, it does that splendidly.
If you're gonna pretend that the dollar is supposed to hold its value over decades or centuries, I beg your forgiveness to be this crude, but you don't have the slightest idea of what a dollar is.
RS: Barry, I so appreciate you taking the time and diving so deep and giving us so much of your time. Thank you for this conversation. Anybody who enjoys smart conversations, especially about investing but also just in general, check out Barry's podcast, Masters in Business. Look at The Big Picture.
Happy for you to have the last word if you wanna leave a line or two or share with investors or listeners how to get in touch with you. Happy for you to do that now.
BR: Sure. So find me at ritholtz.com or ritholtzwealth.com. The big takeaway from the book is simply, we spend so much time chasing winners, pursuing outperformance, trying to pick the next NVIDIA, Microsoft, Google, whatever. And the data is overwhelming.
If instead of trying to hit towering home runs, we just made fewer errors, just less unforced errors, make less mistakes, be aware of the bad ideas we believe in, be aware of our lack of understanding of numbers.
It's called double entry accounting for a reason. It's not just the cost. It's what are you earning to buy those goods. These manifest as bad behavior.
And every time I look at a portfolio that's just festooned with junk and 40 different mutual funds and 100 different stocks, I know this person has no impulse control, no control over their behavior.
The market is your friend if you allow time to work for you. And I think it's all of our jobs to stop interfering with the magic of compounding.
To go back to the Bertrand Russell quote or the Jack Bogle quote:
Don't just do something. Sit there.
